Agents fear emerging channels, but digital's impact goes farther
It’s tough being an insurance agent today. Merger and acquisition activity is increasing. The demands of their customers evolve quickly. And start-up competitors such as CoverHound and PolicyGenius are waiting to disrupt the entire distribution chain.
As of 2016, the number of independent agents hovered at about 38,000, according to the Independent Insurance Agents Brokers of America (Big I), which says that since 2004, the estimate has fluctuated from between 37,500 and 39,000. Smaller agencies make up 21 percent of the overall population and jumbo agencies close to 2 percent. The Big I summarizes that M&A activity has had an impact on the size and health of the agency network.
In fact, results of the 2016 Agency Universe Study of the independent agency system, conducted by the Big “I” and 17 major insurance companies, indicate that emerging buying channels represents a greater concern among agents, particularly smaller ones, than does the impact of technological advancements or the sharing economy.
Ironically, agents also seem to struggle with the technological advancements necessary to market themselves effectively on the Internet. “Fifty-seven percent of agencies report that marketing their agency effectively online is among their top three technological challenges—a significant increase over the 46% of agencies that cited the same challenge in 2014,” notes the report.
It’s an understatement to say that independent agents need to keep pace with technology, and there’s no shortage of options available to them as they build out platforms that enable them to engage with their customers. But the discussion is bigger than that. It’s about how the industry is responding.
In Forrester's 2016 North American Financial Services Customer Life Cycle Survey, more than 4,000 new auto insurance customers were asked about interactions with their insurers after buying their coverage. Just 22 % of U.S. consumers surveyed said that they had registered for online self-service on their new auto insurer's web or mobile site. Equally important, only 12% said that they had gotten an email from the carrier or agent about how to use their insurance coverage--and the online services.
If insurers are having difficulty understanding the importance of communication with customers, what does that model for the agent? Without further connections with whoever sold them the policy, the customer may not know how to manage their coverage, much less understand that additional, valuable coverage even exists.
Frank Sentner, principal at Sentwood Consulting, says that there are plenty of digital communication platforms available that will allow agents to communicate with their customers in the way that each customer prefers providing customized, personalized messages that are triggered by meaningful events. “The problem (as with everything else) is not the lack of technology, but rather the lack of vision and execution,” says Sentner.
Sentner, whose professional mission is to help insurers and agents develop strategies that use apps that facilitate access by all stakeholders to online/anytime/anywhere access to policy information, adds that, “sadly, I have several agency customers and when I mention these apps, I invariably get a blank look.”
Meanwhile, insurtech startups are finding their way through the forest. This week Hippo, an online provider of home insurance founded in 2015, and Elafris, a developer of an artificial intelligence messaging platform, announced their efforts to create a virtual agent chatbot infrastructure. Elafris says its AI messaging platform can leverage neural networks and machine learning technologies to create virtual insurance agents that “eliminate wait times and response lag for insurance customers when they need to communicate with their provider, file a claim or buy an add-on product.”
“I'm often surprised when I talk to independent agents and they've never heard of companies like Slice, Trov, or Lemonade,” says Ellen Carney, principal analyst with Forrester Research. “This ignorance will come back to haunt the independent agent community.”
The future state for independent agents will call for even more attention to delivering value to their immediate customers and to the carriers they represent. For example, consider the recent launch by Bank of America of its Robo Banks, completely automated branches in Denver and Minneapolis (relatively new markets for BOA) where customers can use ATMs and video chat with employees at other branches. It’s not a stretch to see a similar fate for the independent insurance agent, especially those tied to Tier 1 leaders in the industry.
Sentner believes P&C personal lines agents are particularly vulnerable to the likes of insurtech startups and other market disrupters. “Unless they specialize in high net worth personal lines, they should find another line of work,” he says. “For 40 years, I have been told that agents were an endangered species, but I honestly believe that P&C Personal Lines Agents will be irrelevant in the near future because the long-awaited “digital revolution” is here. There simply isn’t enough money in commodity lines to justify commissions for an agent.”
Again, this gets back to the importance of the right response. Not every insurtech startup is going to be successful; they’ll fight loyalty among certain age groups happy with their existing insurance carrier and agent. And I’d even wager that some startups sport an innovation that is ranked too far forward, and will therefore fall to the slings and arrows of first adopters.
Against all of this, agents need to wake up and step forward with digital strategies that can be in alignment with their customers’ demands—regardless of where their carriers are on their own digital journey. And most importantly, they must be ready to add more value: For example, agents, whether they realize it or not, have an opportunity to be in relationship with their customers—whether it’s being the trusted financial advisor, the go-to source for information about what’s covered, or the calming voice and support during a claim. Forrester’s Carney adds that there’s nothing stopping agents from even approaching the disrupters: “Who better to help the insurtech startups find customers than the independent agent?”
If these agents continue to face obsolescence, maybe the discussion needs to be around who owns the relationship with the customer—the carrier or the agent. If we can assume that the insurer and the agent share the goal of being successful, this is a key question to be answered, because, to the independent agent, the customer should be anything but a commodity.